Facebook Fires Employee for Insider Trading

Facebook fired a senior employee who bought Facebook shares through secondary markets in violation of the company’s policy on insider trading, according to people with direct knowledge of the matter.

The episode could bring further scrutiny to markets that deal in shares of private companies like Facebook, Twitter, LinkedIn and Zynga. The Securities and Exchange Commission began an inquiry into these markets last year.

The employee, Michael Brown, worked in corporate development. In a statement e-mailed by his lawyer, Edward Swanson, Mr. Brown said: “I did buy Facebook stock on the secondary market in early September 2010, and I did so with the absolute best of intentions and only because I believe in Facebook.”

In an apparent reference to that report, Mr. Brown said: “False and damaging information has been published about my actions.” He added that he had no knowledge of the Goldman Sachs deal “until it appeared in the press in January 2011.”

TechCrunch updated its story Friday morning, saying that Mr. Brown may have bought the shares in September.

Facebook fired Mr. Brown a few weeks ago, according to the people with knowledge of the firing, who agreed to speak on the condition of anonymity because they were not authorized to discuss it.

Stephen Diamond, a professor at Santa Clara University who teaches securities law, said that many of the legal restrictions on insider trading applied equally to private and public company shares.

“If the employee had material information which he did not share with the seller, he could be charged with violating the law,” Professor Diamond said.

The episode could also bring further scrutiny from the S.E.C. to exchanges like SecondMarket and SharesPost, he said.

“This could be evidence that the control procedures in these markets are not sufficient,” Professor Diamond said.

According to Mr. Brown’s LinkedIn profile, he had been employed at Facebook since April 2009. Before that he worked at Foundation Capital, a Silicon Valley venture investing firm.

“I am saddened by the course of events that led to my departure and the incorrect reporting of it,” Mr. Brown said. “I am now focused on moving on past this unfortunate series of events.”